In the state mortgage-aid program, Keep Your Home California, for instance, homeowners’ monthly payment ratio must be cut to 31 percent of their gross household income, and up to $100,000 of principal can be reduced for each household.

How mortgage reductions work varies by lender and government program, but the reduction is usually paired with another change in the mortgage. In the state program, borrowers seeking assistance could expect one of these scenarios:

• Principal reduction with a change in loan term, like extending the life of the mortgage from 30 years to 40 years.

• Principal reduction with changes to the loan term and interest rate.

Loan investors decide

The path that borrowers could take is determined by those who own the loans, also known as the investors. Though absent from negotiations, they have spelled out very clearly in servicing contracts whether they will entertain principal reductions.

“The servicing agreements lay out the parameters for what (servicers) are authorized to do,” said Di Richardson, with Keep Your Home California.

Investors who approve of mortgage write-downs make it clear how they’re willing to carry out them out. Preferences vary. In some cases, private investors go for the term extension first. If the principal reduction is done in connection with the federal mortgage-aid program, HAMP, then the borrower will likely see an interest-rate cut, assuming the borrower successfully completes trial payments.

Other times, investors attempt a trial-and-error process in which a principal reduction is considered first to bring down the mortgage payment to an affordable level. If that alone doesn’t work, then the borrower’s loan term is extended. If those two together don’t work, then an interest rate reduction is added.

So far, roughly $5 million of mortgage principal has either been forgiven or is in the process of being forgiven in San Diego County through Keep Your Home California, just one slice of the national principal-reduction pie.

It’s unclear what kind of deals the majority of Keep Your California clients are getting, but two of the three borrowers that the U-T San Diego talked to said they received principal reductions along with a loan-term extension. The third borrower, Donna Marvel of the City Heights are of San Diego, received only a principal reduction with no other changes.

One borrower’s story

Marisabel Garcia of Oak Park has supported two kids and a mortgage on one income following a divorce. Her financial worries worsened after a series of home repairs surfaced: a broken front door, a faulty heater and electrical wiring that was acting up.

After hearing about the Keep Your Home California program on Spanish radio, Garcia, 47, immediately applied to improve her chances of keeping her home.

After a thorough five-month process that involved reams of paperwork, she emerged with a permanent mortgage reduction that is saving her $600 a month.

In Garcia’s case, her principal reduction was paired with a loan extension to 45 years, up from the original 30-year fixed-rate loan she had before.